Brazil’s 2.9% Growth Is the Worst in South America

Real, the Brazilian currency Brazil's economy expanded 2.9% last year compared to 2.35% in 2005 according to the latest official release on Wednesday. In the fourth quarter GDP increased 1.1% over the third quarter and 3.8% over the same period in 2005, reported the Brazilian Institute of Geography and Statistics.

The percentage is higher that the 2.7% anticipated by a panel of experts from the private sector but still is the smallest growth in South America. Brazil's economy has been growing less than the Latinamerica average (5%) and way below similar emerging economies in Asia.

Brazilian President Luiz Inácio Lula da Silva has promised an average annual growth of 5% for his second four year mandate.

In related news, the Brazilian Central Bank reported that international reserves reached a historic record of over 100 billion US dollars for the first time ever. Based on the international liquidity concept reserves totaled 99.7 billion US dollars Monday.

International reserves have been increasing for months following the Central Bank's policy of purchasing US dollars in the domestic market in an attempt to contain the appreciation of the local currency real, which is now in the range of 2.1 reais to the greenback.

When Lula first took office in 2002 the exchange rate was almost 4 to 1. Brazilian exporters are groaning that the "overvalued" real is increasing costs in US dollars and cutting into profits.

Last week, the US dollar in the Brazilian market dropped to 2.08 reais, its lowest level since May 2006, but following strong US dollars purchases by the Central Bank the exchange rose to 2.12 Reais.

The Central Bank last January intervened in money markets absorbing US$ 4.8 Billion and is estimated to end the year's first two months with US$ 9 billion. At the end of January, international reserves stood at US$ 91 billion, compared to 85.8 billion in December 2006.

Reserves have been increasing to historic levels in Brazil since last September when for the first time since 1998 they reached US$ 74 billion. However at the time the bank decided to let the real float and this was followed by an abrupt hemorrhage of reserves in coincidence with the Asian and Russian financial crisis.

Central Bank president Henrique Meirelles said that in spite of the latest international turbulences the bank will continue to buy US dollars in local markets. "We have a reserves accumulation policy which was decided January 2004, and that policy has been steered with great success".

Mercopress

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